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The mortgage settlement may cost taxpayers

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A report says U.S. taxpayers may end up on the losing side of the multi-billion-dollar housing settlement between banks and states. Former TARP Inspector General Neil Barofsky explains how we may be bailing out big banks again.

Adriene Hill: Turns out that $40 billion housing settlement between banks and states that the Obama administration announced last week -- it could end up costing taxpayers. That's according to a report in the Financial Times. We've got Neil Barofsky with us now to help explain. He's the former inspector general of the TARP bailout. Good morning.

Neil Barofsky: Good morning.

Hill: So what do we know about the mortgage settlement today that we didn't know before?

Barofsky: Well it turns out that the government is going to be providing credit to the banks, the mortgage servicers, that are the subject to the settlement for modifications that they do that are going to be partially funded by the United States taxpayer through the already existing government HAMP program.

Hill: So HAMP, that's the Home Affordable Modification Program. Why does this matter?

Barofsky: It's kind of crazy when you think about it. This mortgage settlement is supposed to be a settlement for this remarkable fraud that the banks and the servicers have created across the country -- lying on affidavits, forging affidavits during foreclosures, all sorts of different abuses. And the idea behind the settlement, at least this is what we were told during the press conference, is was this was going to bring accountability. It was going to punish the servicers. It was going to be punitive and make them pay for this remarkable misconduct that occurred. And now we're finding out that this so-called penalty is actually going to involve money flowing from the taxpayer into the banks. We're bailing them out again!

Hill: So what does this tell us, then, about the true intent of the settlement?

Barofsky: Well I think what it does is it shows that the true intent of the settlement may differ from that which we were told during all the various press conferences. And instead of really, at the heart of this, being about accountability and punishment it seems like frankly a political whitewash during an election year. So it makes the Department of Justice look good. It makes the attorneys general look good. The banks are happy because they are going to get all the credit for this settlement while receiving money from the taxpayers. Really the only big losers are the taxpayers and, of course, the homeowners.